A large proportion of our incomes go into paying off our home loans – and they can take decades to pay off. What many people don’t realise is that there are ways to pay off your home loan faster – and save a fortune!
We will look at some of the ways you can pay off your home loan faster and save money in today’s guide.
Pay More and More Often
If possible you should select a home loan product that allows you make extra contributions whenever you are able to.
By making additional regular contributions and lump-sum payments into your home loan, not only are you paying off your home loan faster but you will be saving money on the interest payable. Each extra dollar you put into the loan, is a dollar you're not paying interest on! You can see the effect of making additional payments with our mortgage repayments calculator.
With the right home loan it should be very easy for you to pay extra regular and lump sum payments via simple internet banking or over the counter transfers and payments.
Why not increase the frequency with which you make payments, for example making payments more often than once a month? By choosing to make home loan repayments fortnightly or weekly, depending on the home loan product you have, you can reduce the interest that you need to pay in total. Such a simple step as making more frequent payments, may see you paying off your home loan more quickly and saving money! You can try out various scenarios of making weekly and fortnightly payments in our repayments calculator.
Get a Lower Interest Rate
It sounds like a no brainer – but many people are not getting the best interest rate possible on their home loans.
The lower the interest rate, the quicker you can pay off your home loan and the more money you will save – easy!
However in some cases, by having the lowest interest rates you may be compromising the flexibility on your home loan. This can include the inability to pay extra on your home loan each month as we mentioned before. In the end you need to weigh up the pros and cons of each home loan – and sometimes the cheapest interest rates may not save you the most money in the long run.
Cut Down on Unnecessary Luxuries
We all like to indulge in a few luxuries such as a daily latte and muffin from the local café. It may not seem like a big expense at the time, however if you work out how much you spend over the course of a year you would be surprised at how much you could save.
Many people can easily save over $500 a month on cutting down on things like coffees, smokes and that sneaky glass of wine or pint after work. Based on this sort of number, you could potentially pay off an additional $6,000 or more on your home loan each year – cutting down the amount remaining on your loan - and saving up to $60,000 in interest on an average 30-year loan!
Do Your Calculations
We touched on this earlier, but it is definitely worth reiterating. Don’t just settle for whatever home loan you have – you may benefit from comparing different home loans to ensure you are getting the best value for money and are saving the most money on your loan amount. A Mortgage Broker can help you look at the options, whether you have an existing loan you are looking to refinance or you are in the market for a new loan. Here's a handy tool to help you find a Mortgage Broker near you.
This might sound obvious, but different home loan providers have different products – some of which have higher interest rates than others but may offer you additional benefits that could suit your situation. For example, mortgage offset accounts are an option that mean you can have your savings in an account which is linked to your home loan, and any money in that account is taken into account when calculating the interest payable. A Mortgage Broker can take you through the various options across the lenders here.
You can model different scenarios and get a view of the money you can potentially save by making additional payments and the like by using our mortgage repayments calculator, which supports modeling multiple lump sum payments, regular additional payments, various payment frequencies including weekly and fortnightly across the life of your home loan.